BROADBAND INFRASTRUCTURE: The Curtain Goes Up

While broadband has been talked about for quite a few years now, 2004-05
ushered in a new era for it in India. On the one hand, the government announced
the country's first-ever national broadband policy, while on the other, after
years of lackadaisical approach, BSNL and MTNL swung into action by launching
their broadband services. Before the state-owned operators came into the
picture, private telcos like Tata-controlled VSNL and Bharti, and Internet
service providers like Sify, Icenet, In2cable, Iqara Telecom and Hathway among
others had launched their broadband services using DSL, cable or Ethernet-based
technologies. At another front, service providers also began floating the idea
about triple play (voice, data and video) on broadband. Some of the operators
like BSNL and Tata-VSNL also launched pilots of services like video multicast,
TV and Video-on-Demand to customers over DSL and Ethernet.

DSL and Ethernet Gain Traction

For all practical purposes, the broadband equipment market in India is at
present dominated by the DSL technology. DSL has got an early mover advantage
largely because of BSNL, MTNL and Bharti. Like elsewhere in Asia-Pacific,
IP/Ethernet Digital Subscriber Line Access Multiplexer (DSLAMs) were popular in
India too. By the end of the financial year 2005 (March 31) Bharti was providing
DSL-based broadband services in over 52 towns in the circles of Madhya Pradesh,
Chhattisgarh, Haryana, Delhi, Karnataka, and Tamil Nadu. It had around 118,000
DSL subscribers. On the other hand, both BSNL and MTNL are also using DSL as it
fits well into their existing infrastructure and their huge last mile copper
base. They have deployed ADSL2+ (Asymmetrical Digital Subscriber Line)
technology.

Metro
Ethernet has also emerged as a major technology option for broadband access.
While VSNL has made public its Metro Ethernet deployment, at least two more
operators are carrying out trials with various versions of Metro Ethernet. The
technology appears to be finding favour with service providers such as VSNL, as
it does not own last mile copper. Globally, service providers have been adopting
Metro Ethernet to meet an increasing demand from customers for newer services at
low prices.

It was again a dismal year for cable modem-based Internet access. Though
earlier seen as a favourite, it failed to gain ground because of several
reasons. It had no backing from any of the telcos or large ISPs, the key drivers
of broadband access. Mostly cable TV operators were deploying cable modem.

Some vendors have been trying to push wireless based broadband technologies
in the Indian market but that has met with little success because of factors
including regulatory hurdles primarily related to spectrum allocation and lack
of maturity of the wireless broadband (often referred to as WiBro) technologies
themselves. The price per customer of wireless broadband did come down
substantially last year, yet it remained expensive compared to DSL. However,
substantial amount of commercialization of wireless broadband did not take
place. Operators like Tata and Reliance have been doing trials with WiMax.
Bharti also did trials with UTStarcom and Navini and is seriously looking at
wireless in areas where it does not have copper.

Major Broadband Equipment Deals in 2004—05

For UTStarcom, BSNL emerged as the key customer in 2004. In August 2004,
UTStarcom was awarded a contract valued at $9.2 million for deployment of its
AN2000(TM) IB and AN-2000 B-100 IP-based DSLAM platforms and related equipment
for the second phase of Bharat Sanchar Nigam Ltd.'s National Internet Backbone
project. In February 2005, the vendor was awarded an expansion contract for the
deployment of 75,000 ports of its AN-2000(TM) B820 and AN-2000 B100 IP-based
Digital Subscriber Line Access Multiplexer (IP DSLAM) platforms and related
equipment for the second phase of the Backbone project. This contract extends
the initial $9.2 million contract signed with BSNL in August 2004.

BSNL also gave away a significant portion of its broadband infrastructure
contract to Huawei. According to VOICE&DATA estimates, the contract was
worth Rs 80 crore (value of equipment deployed by Huawei in FY 2004—05).

On the other hand, MTNL awarded its equipment contract to Ericsson for the
roll out of the state-owned operator's broadband network in Delhi and Mumbai.
The contract was on a turnkey basis for the supply and rollout of Ericsson's
solutions Ethernet DSL Access and Ethernet aggregation technology into the MTNL
network. It included a complete end-to-end broadband access solution including
upgrading of existing telephony lines with Ethernet DSL technology, customer
premises equipment, bandwidth provisioning system and aggregation network. The
ADSL2+ technology, selected by MTNL for the mass rollout, will allow MTNL to
offer up to 24 Mbps bandwidth to its customers over the existing copper lines.

Another significant deal in the broadband space in 2004 was the one clinched
by Cisco. The deal was worth Rs 500 crore. VSNL announced the deployment of
broadband Metro Ethernet solution for Tata Indicom Broadband Services. The
solution (based on Cisco 12000, 7600 ad 7300 series of routers and Cisco
Catalyst 3750 and 2950 series) is the largest broadband Metro Ethernet
deployment in India and will provide Tata Indicom's enterprise and residential
customers with broadband services of 10/100 Mbps connectivity. Cisco's
technology would enable delivery of bundled services like voice over IP,
broadcast TV, video-on-demand for residential customers and IP VPN, and video
conferencing services for enterprise customers. It would also boost VSNL's
endeavor to provide state-of-the-art 'triple-play' (voice, data, and video)
Tata Indicom Broadband Services across eight cities in the country, in the first
phase. The current deployment has the capability to connect over a million
customers.

Key Market Drivers

A number of factors were responsible for the growth of broadband or more
aptly the birth of the broadband market in Indian in 2004. The key, of course,
was the focus of telcos on data and applications for enhancing their margins. As
operators began looking for new avenues of growth from their fixed services,
broadband emerged as the natural gainer. Operators were aided in their effort by
the falling equipment prices. Also, even though the National Broadband Policy of
the government didn't have anything significant to offer, it did give a
momentum, at least to BSNL and MTNL's efforts.

While operators like BSNL, MTNL, and VSNL (as well as Bharti who got into the
market early) began with providing high speed Internet access, a slew of
value-added services were surely on their mind. In all probability, these
operators are optimizing their broadband network to offer a combination of
voice, data and video services using a single pipe to homes. Often called
"triple play" services, video on demand is likely to be the focus of
triple play. While no video on demand service was launched in FY 2004—05, at
least two operators were doing pilots.

Outlook 2005-06

Among the vendors, Cisco, UTStarcom, Ericsson, Alcatel, Motorola, Huawei and
ZTE are likely to emerge as significant players in the broadband space. A number
of wireless vendors are also likely to show up.

Five key operators would drive the demand for broadband equipment in the
coming years. These would be BSNL, MTNL, Bharti, Reliance and Tata
Teleservices-VSNL. However, there would also be a number of niche and regional
players who would play a significant role in some markets. These players would
be Sify, Iqara Telecom, Aksh Broadband, Icenet, In2cable and Hathway. Together,
these service providers would be the key drivers of the broadband equipment
market in India.

As for the technology, given the complexity of the market, as well as the
variety of services and applications emerging on broadband, it is likely that at
least in the medium term a mix of technologies-DSL, Ethernet, Cable Modem and
Wireless - would continue to be significant in the market. Of these, DSL and
Ethernet, in that order, would be more dominating. DSL would dominate largely
because of historical reasons while Metro Ethernet could help those operators
who cannot take the copper route to homes. The year 2005 would also see a lot of
activity on the wireless front. Many operators are seriously considering
wireless, and it may emerge as a standard for operators who don't have copper
last mile access.

Among the services, video is likely to emerge as one of the key drivers of
broadband. At least three operators are likely to launch video-on-demand service
in 2005. A few of them have been doing pilots for some time now. Another
important driver would be the emerging market for wireless networking in homes
that in turn is being driven by falling price of wireless equipment.

The current year could see a lot of growth in the broadband equipment market
with almost all major telcos likely to target millions of new customers and new
geographies. BSNL plans to provide broadband services in 198 cities in the
country in a phased manner spanning over the next few months. It hopes to have
about 2.5 million broadband subscribers in next two years. Also, Reliance
Infocomm is likely to launch its broadband services soon. During the next fiscal
Bharti may take its broadband services to 15 more cities in Punjab, Maharashtra,
Rajasthan, West Bengal and Kerala. The operator is likely to invest Rs 150 crore
in UP alone for fixed line and broadband services.

Broadband equipment vendors can also hope to benefit from the Rs 400 crore
Andhra Pradesh broadband project. The project would be executed by a consortium
of companies led by Aksh Broadband, which includes Railtel Corp. India, Tata
Indicom/VSNL, Incable Network (Andhra) Spectranet and Nuziveedu Seeds.

Ravi Shekhar Pandey